The stock market is flashing signs that another buying opportunity could be on the way, according to Bank of America.
Analysts at the bank said they believed the S&P 500 was slightly overbought and due for another pullback in the near term. Rather than fretting over a potential sell-off, investors should buy that dip, the bank said, adding that it believes the market is still in an overall uptrend.
The S&P 500 recently flashed a TD Combo sell signal on May 16. It’s a technical indicator that can suggest a near-term drop in stock prices.
The S&P 500’s relative strength index — a gauge that determines the momentum of the market — also suggests that a stock pullback is due, the BofA analysts wrote on Wednesday.
“The S&P 500 isn’t moody, just a little overbought and wary of rates. Dip due, buy it,” the analysts said.
The bank estimated that the lowest support level it sees for stocks was around 5,580. That price implies the benchmark index falling around 5% from its current level.
On the upside, analysts said that they saw the benchmark index rising to around 6,000 to retest its all-time highs, though it’s possible it climbs as hight as 6,266 in the near term.
There are a few reasons the market could rise, according to the bank:
For one, stocks look like they’re following a trajectory similar to 2015-2018. In those years, which also closely followed a presidential election, stocks rallied around 7% before peaking.
In 2018, the S&P 500 fell around 10% from its postelection peak. This year, the index has seen a steeper 20% from its postelection top.
“Should this repeat in 2025, that equates to the SPX reaching 6,266 this summer. As Newton’s third law of motion suggests, for every action there is an equal and opposite reaction,” the bank said.
Second, breadth, or a measure of the number of winning stocks relative to the number of losing stocks, is improving. The number of stocks above the S&P 500’s 200-day simple moving average has climbed above 50%.
The S&P 500 is up for the month, reflecting a red-hot rally that clawed back the benchmark index’s losses since the start of the year. But the index is down more than 1% from last Friday, when Moody’s downgrade of the US debt rating stoked more concern about the yawning budget deficit.
